California Consumers — Beware of Arbitration Clauses


arbitrationAn interesting expose in the New York Times about arbitration has sparked a lot of interest. KQED’s radio program Forum, featured one of the authors and provided a lively discussion from the audience. Arbitration clauses are now commonly included in consumer contracts. They are found in credit card contracts and employment contracts. Even medical facilities such as doctor’s offices, hospitals and nursing homes contain arbitration clauses in the provider/patient agreement. The clause is hidden in the fine print that we typically gloss over and agree to. When you read an arbitration clause it appears benign. “The company/provider may elect to resolve any claim by individual arbitration. Claims are decided by a neutral arbitrator.” Sounds fair? I don’t think so. I believe arbitration has negatively impacted consumer’s legal rights.

As an Alameda personal injury attorney, l see these arbitration clauses frequently in nursing home agreements and automobile policies, specifically in the uninsured and underinsured portion of a policy. Gyms and fitness centers often include these clauses in their membership agreement, too. By agreeing to arbitration, one gives up the valuable right to a jury trial. Since insurance companies and large corporations frequently find themselves before the same panels of arbitrators, the deck is all too often stacked against the consumer. People may think that because it’s an arbitration, they will not need a lawyer. Unfortunately, this is not the case as all of the legal technicalities of a lawsuit (except the right to trial by jury) are still followed.

The New York Times article describes how arbitration clauses have been designed to circumvent lawsuits, specifically class action lawsuits. What the clause does is prevent individuals with a relatively small claim from banning together in a group, a class action. Class action is an affordable way for individuals to hold large companies accountable for practices that hurt consumers. When an individual is wronged by a company, the ability for that individual to sue is greatly hampered by litigation costs. Large companies with a bevy of attorneys are equipped to shut down consumer challenges. A class action levels the legal playing field economically. By agreeing to an individual arbitration, you relinquish your rights to this powerful form of civil action.

This article, the first in a series of 3, has a Bay Area angle. It highlights a litigation dispute between Oakland chef and restaurant owner, Alan Carlson and American Express. Alan is the owner of Italian Colors located in the Montclair area. My family and I have enjoyed many meals at Italian Colors. This dispute was about the processing fees American Express charges that are 30% higher than that of Visa or MasterCard. I am sure you’ve noticed that many establishments do not even accept American Express cards for this very reason. Mr. Carlson contended that the fees charged by Am Ex were hurting profits but he could not afford to turn away diners using the cards. The dispute between Italian Colors and American Express took over 10 years to resolve and unfortunately for Mr. Carlson the resolution was not in his favor.

Backed by the Chamber of Commerce, in 2005 Congress passed the Class Action Fairness Act, which in a nutshell allowed companies to impose arbitrations in contracts. In 2013 the Supreme Court ruled that arbitration clauses could outlaw class actions even if a class action was the only realistic way to bring a case.

Arbitration Everywhere, Stacking the Deck of Justice, New York Times, October 31, 2015

Report Finds Companies’ Fine Print Blocks Class Action Lawsuits, Forum, KQED Radio, November 4, 2015

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